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UCFC Announces Record Earnings for the Second Quarter and a Dividend Increase of 17%

YOUNGSTOWN, Ohio--(BUSINESS WIRE)--

United Community Financial Corp. (Company) (UCFC), parent company of Home Savings Bank (Home Savings), announced today net income of $9.5 million and diluted earnings per share (“EPS”) of $0.190, a 16.6% improvement over the $0.163 per common share reported for the quarter ended June 30, 2017.

Second quarter 2018 highlights:

  • Total loan growth of 12.9% over the last twelve months, and 3.1% on a linked quarter basis
  • Monthly average customer deposit growth of 10.1% over the last twelve months, and 2.2% over the last three months
  • ROA of 1.40%, ROE of 12.56%, ROTE of 13.65% for the quarter
  • Dividend increase of 17% to $0.07 per common share declared

Gary M. Small President and Chief Executive Officer of the Company commented, “We are pleased with the quarterly performance results and the ongoing progress on our strategic initiatives focused on loan, deposit and revenue growth. Each market and business unit is showing improvement and our client base is expanding. Loan growth, outstanding credit performance, and a well-managed expense base continue to be strong points for the organization. Deposit growth over the past year has been outstanding and remains a central focus for the team.”

Strong Loan and Deposit Growth

Total loans grew $252.2 million, or 12.9%, during the previous twelve months ended June 30, 2018, and $66.7 million, or 3.1% compared to the previous quarter. At June 30, 2018, total net loans and loans held for sale aggregated $2.21 billion.

Home Savings has produced excellent results over all lending categories. The increase in total loans for the period was driven by an increase in commercial loans, which grew $158.6 million, or 21.4%, over the last twelve months and $27.7 million, or 3.2%, versus March 31, 2018. Mortgage loans (including loans held for sale) increased $59.5 million, or 6.1%, over the previous twelve months and increased $32.3 million, or 3.2%, during the past three months. Consumer loans increased $33.8 million, or 13.4%, since June 30, 2017 and $5.8 million, or 2.1%, since the previous quarter.

Monthly average customer deposits (which exclude brokered certificates of deposit) increased 10.1% from June 30, 2017 and 2.2% from March 31, 2018. The growth in average customer deposits was driven by increases in average non-interest bearing accounts of 12.7% over the past twelve months and an increase of 0.60% over the past three months. Average business deposits continue to rise, increasing 16.6% over the past twelve months and 2.8% over the past three months. The Company continues to experience deposit gains from all lines of business including treasury management, private banking, consumer and public funds.

Net Interest Margin

The net interest margin was 3.36% for the three months ended June 30, 2018 compared to 3.47% for the previous quarter. This eleven basis point decrease is the result of three separate items. First, a one time prepayment penalty on a commercial loan in the first quarter 2018 increased the margin five basis points in that quarter. Secondly, purchase accounting adjustments were two basis points less favorable to the margin than the first quarter of 2018. Lastly, the remaining four basis point difference is the result of a 38 basis point increase in cost of Federal Home Loan Bank advances.

Excluding the impact of purchase accounting yield adjustments, the net interest margin would have been 3.29%, or seven basis points lower than the 3.36% reported, for the quarter ended June 30, 2018.

Small continued, “The flattening yield curve presents challenges for all in the banking industry and adds more volatility to Home Savings’ net interest margin management. We are operating within our expected margin range and are funded well for additional growth.”

Nonperforming Loans to Total Loans Ratio Decreases during the Second Quarter

Asset quality remained very strong during the second quarter. The Company’s level of nonperforming loans, delinquencies and classified assets all improved during the quarter. Net chargeoffs for the quarter were 1.3 basis points of average loans. Additionally, over the past three months, the ratio of the allowance for loan losses as a percent of loans has increased from 177.5% to 198.4% at June 30, 2018. Nonperforming loans to total loans at June 30, 2018 declined to 0.51%. Delinquent loans to total loans are down to 0.67% at June 30, 2018.

The Company recognized a negative provision for loan losses of $138,000 for the second quarter of 2018, which was down $545,000 in comparison to the previous quarter. Continued asset quality improvements, and an improved credit environment, combined with a favorable change in loan portfolio mix resulted in the need for a lower required provision. As of June 30, 2018, the Company’s allowance for loan losses to total loans was 1.01%, versus 1.04% at March 31, 2018.

Loans acquired through the acquisition during the first quarter of 2017 were recorded at fair value. When combining the remaining fair value adjustment of $3.0 million and the Company’s allowance, the Company’s allowance as a percentage of total loans increases to 1.15%.

Non-Interest Income

Non-interest income decreased $1.2 million to $5.9 million for the second quarter of 2018 compared to $7.1 million for the same quarter last year. Significantly affecting this comparison is mortgage banking income being lower by $912,000, or 43.1%. The volume of mortgage loan production increased 17% and is very favorable to the prior year, however, as experienced industry-wide, market competitiveness continues to impact the margin on saleable loans.

On a year to date basis, mortgage banking income was down 25.5% compared to the same period last year.

Also affecting non-interest income, security gains were down $207,000 when compared to the second quarter of 2017. Lastly, debit/credit card fee income was down $149,000, when compared to the second quarter of 2017 due primarily to a one-time VISA credit as a result of the implementation of a more secure chip debit card, which did not reoccur in 2018.

Small added, “Home Savings’ residential mortgage team has delivered double-digit production growth over the past year, well in excess of the industry benchmark. The landscape is more competitive than ever and pricing has gotten very aggressive. While narrowed pricing is having an adverse impact on gain on sale income, we also see our portfolio yields increasing and our related operating costs decreasing. On balance, the business unit performance remains strong, and we remain very committed to our residential mortgage clients.”

Non-Interest Expense

Non-interest expense was $15.5 million for the second quarter of 2018 compared to $15.2 million during the second quarter of 2017, an increase of $354,000, or 2.3%. This increase is reflective of higher salary and employee benefits costs associated with the hiring of additional revenue generating staff in the latter half of 2017. The Company’s efficiency ratio remains consistent at 57.8%.

Effective Tax Rate

The Company’s effective tax rate on an FTE basis at June 30, 2018 was 19.5% compared to 30.6% at June 30, 2017. The decline was due to the enactment of tax legislation at the end of the year.

Dividend to be Paid

On July 17, 2018, the Board of Directors declared a 17% increase to the quarterly cash dividend to $0.07 per common share payable August 10, 2018 to shareholders of record July 27, 2018.

Conference Call

United Community Financial Corp. will host an earnings conference call on Wednesday, July 18, 2018, at 10:00 a.m. ET, to provide an overview of the Company's second quarter 2018 results and highlights. The conference call may be accessed by calling 1-877-272-7661 ten minutes prior to the start time. Please ask to be joined into the United Community Financial Corp. (UCFC) call. Additionally, a live webcast may be accessed from the Company’s website ir.ucfconline.com. Click on 2nd Quarter 2018 Conference Call on our corporate profile page to join the webcast.

United Community Financial Corp.

Home Savings is a wholly owned subsidiary of the Company and operates retail banking offices and loan production centers in Ohio, western Pennsylvania and West Virginia. Additional information on the Company, Home Savings and James & Sons Insurance may be found on the Company’s web site: ir.ucfconline.com.

When used in this press release, the words or phrases “believes,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project”, “will have”, “can expect” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including changes in economic conditions in the Company’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company’s market area, and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company advises readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

 
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
       
June 30, December 31,
2018 2017 F/(U)
(Dollars in thousands)
Assets:
Cash and deposits with banks $ 32,584 $ 34,365 -5.2 %
Federal funds sold   34,393     12,515   174.8 %
Total cash and cash equivalents 66,977 46,880 42.9 %
Securities:
Available for sale, at fair value 247,630 270,561 -8.5 %
Held to maturity (fair value of $78,194 and $82,126, respectively) 81,294 82,911 -2.0 %
Loans held for sale, at lower of cost or market 211 -100.0 %
Loans held for sale, at fair value 107,701 83,541 28.9 %
Loans, net of allowance for loan losses of $21,405 and $21,202 2,099,781 1,999,877 5.0 %
Federal Home Loan Bank stock, at cost 19,324 19,324 0.0 %
Premises and equipment, net 21,645 22,094 -2.0 %
Accrued interest receivable 8,454 8,190 3.2 %
Real estate owned and other repossessed assets 877 1,253 -30.0 %
Goodwill 20,221 20,221 0.0 %
Core deposit intangible 1,769 1,934 -8.5 %
Customer list intangible 1,980 2,060 -3.9 %
Cash surrender value of life insurance 63,354 62,488 1.4 %
Other assets   29,551     28,360   4.2 %
Total assets $ 2,770,558   $ 2,649,905   4.6 %
 
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Interest bearing $ 1,563,043 $ 1,445,293 8.1 %
Noninterest bearing   383,082     354,970   7.9 %
Customer deposits 1,946,125 1,800,263 8.1 %
Brokered deposits   189,220     156,476   20.9 %
Total deposits 2,135,345 1,956,739 9.1 %
Borrowed funds:
Federal Home Loan Bank advances
Long-term advances 48,927 48,536 0.8 %
Short-term advances   248,000     308,000   -19.5 %
Total Federal Home Loan Bank advances 296,927 356,536 -16.7 %
Repurchase agreements and other   191     197   -3.0 %
Total borrowed funds 297,118 356,733 -16.7 %
Advance payments by borrowers for taxes and insurance 19,253 25,038 -23.1 %
Accrued interest payable 964 1,097 -12.1 %
Accrued expenses and other liabilities   16,394     16,033   2.3 %
Total liabilities   2,469,074     2,355,640   4.8 %
 
Shareholders' Equity:
Preferred stock-no par value; 1,000,000 shares authorized and no shares outstanding 0.0 %

Common stock-no par value; 499,000,000 shares authorized; 54,138,910 shares issued and 49,904,074 and 49,800,126 shares, respectively, outstanding

177,311 177,458 -0.1 %
Retained earnings 179,965 167,852 7.2 %
Accumulated other comprehensive loss (24,077 ) (18,685 ) 28.9 %
Treasury stock, at cost, 4,234,836 and 4,338,784 shares, respectively   (31,715 )   (32,360 ) -2.0 %
Total shareholders’ equity   301,484     294,265   2.5 %
Total liabilities and shareholders’ equity $ 2,770,558   $ 2,649,905   4.6 %
 
 
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                   
For the Three Months Ended For the Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2018 2018 F/(U) 2017 F/(U) 2018 2017 F/(U)
(Dollars in thousands, except per share data)
Interest income
Loans $ 23,275 $ 22,759 2.3 % $ 20,011 16.3 % $ 46,034 $ 37,569 22.5 %
Loans held for sale 1,012 858 17.9 % 872 16.1 % 1,870 1,533 22.0 %
Securities:
Available for sale, nontaxable 356 388 -8.2 % 418 -14.8 % 744 836 -11.0 %
Available for sale, taxable 1,193 1,215 -1.8 % 1,479 -19.3 % 2,408 3,081 -21.8 %
Held to maturity, nontaxable 61 51 19.6 % 52 17.3 % 112 114 -1.8 %
Held to maturity, taxable 398 422 -5.7 % 454 -12.3 % 820 919 -10.8 %
Federal Home Loan Bank stock dividends 274 280 -2.1 % 227 20.7 % 554 441 25.6 %
Other interest earning assets   92     77   19.5 %   40   130.0 %   169     120   40.8 %
Total interest income 26,661 26,050 2.3 % 23,553 13.2 % 52,711 44,613 18.2 %
Interest expense
Deposits 3,790 3,097 -22.4 % 1,987 -90.7 % 6,887 3,608 -90.9 %
Federal Home Loan Bank advances 1,576 1,420 -11.0 % 1,064 -48.1 % 2,996 2,019 -48.4 %
Repurchase agreements and other         0.0 %   8   100.0 %       16   100.0 %
Total interest expense   5,366     4,517   -18.8 %   3,059   -75.4 %   9,883     5,643   -75.1 %
Net interest income 21,295 21,533 -1.1 % 20,494 3.9 % 42,828 38,970 9.9 %
Taxable equivalent adjustment   90     97   -7.2 %   229   -60.7 %   187     466   -59.9 %
Net interest income (FTE) (1) 21,385 21,630 -1.1 % 20,723 3.2 % 43,015 39,436 9.1 %
Provision for loan losses   (138 )   407   133.9 %   842   116.4 %   269     2,317   88.4 %
Net interest income after provision for loan losses (FTE)   21,523     21,223   1.4 %   19,881   8.3 %   42,746     37,119   15.2 %
Non-interest income
Insurance agency income 513 577 -11.1 % 472 8.7 % 1,090 945 15.3 %
Brokerage income 300 272 10.3 % 301 -0.3 % 572 623 -8.2 %
Service fees and other charges:
Deposit related fees 1,392 1,300 7.1 % 1,411 -1.3 % 2,692 2,701 -0.3 %
Mortgage servicing fees 813 812 0.1 % 729 11.5 % 1,625 1,465 10.9 %
Mortgage servicing rights valuation (20 ) 9 -322.2 % (2 ) 900.0 % (11 ) (5 ) -120.0 %
Mortgage servicing rights amortization (542 ) (500 ) 8.4 % (486 ) 11.5 % (1,042 ) (935 ) -11.4 %
Other service fees 61 38 60.5 % 33 84.8 % 99 62 59.7 %
Net gains (losses):
Securities available for sale 94 139 -32.4 % 301 -68.8 % 233 330 -29.4 %
Mortgage banking income 1,205 1,358 -11.3 % 2,117 -43.1 % 2,563 3,440 -25.5 %
Real estate owned and other repossessed assets charges, net (113 ) (78 ) 44.9 % (18 ) 527.8 % (191 ) (70 ) -172.9 %
Debit/credit card fees 1,177 949 24.0 % 1,326 -11.2 % 2,126 2,249 -5.5 %
Trust fee income 473 469 0.9 % 420 12.6 % 942 702 34.2 %
Other income   499     474   5.3 %   486   2.7 %   973     967   0.6 %
Total non-interest income   5,852     5,819   0.6 %   7,090   -17.5 %   11,671     12,474   -6.4 %
Non-interest expense
Salaries and employee benefits 8,937 9,998 10.6 % 8,749 -2.1 % 18,935 17,724 -6.8 %
Occupancy 950 1,100 13.6 % 943 -0.7 % 2,050 1,907 -7.5 %
Equipment and data processing 2,372 2,154 -10.1 % 2,306 -2.9 % 4,526 4,385 -3.2 %
Financial institutions tax 495 496 0.2 % 510 2.9 % 991 1,000 0.9 %
Advertising 290 235 -23.4 % 265 -9.4 % 525 389 -35.0 %
Amortization of intangible assets 132 113 -16.8 % 113 -16.8 % 245 196 -25.0 %
FDIC insurance premiums 288 290 0.7 % 340 15.3 % 578 528 -9.5 %
Other insurance premiums 109 109 0.0 % 109 0.0 % 218 221 1.4 %
Professional fees:
Legal fees 147 299 50.8 % 184 20.1 % 446 413 -8.0 %
Other professional fees 499 391 -27.6 % 420 -18.8 % 890 940 5.3 %
Supervisory fees 42 42 0.0 % 0.0 % 84 -100.0 %
Real estate owned and other repossessed asset expenses 34 36 5.6 % 23 -47.8 % 70 85 17.6 %
Acquisition related expenses 0.0 % 0.0 % 4,962 100.0 %
Other expenses   1,235     1,337   7.6 %   1,214   -1.7 %   2,572     2,716   5.3 %
Total non-interest expenses   15,530     16,600   6.4 %   15,176   -2.3 %   32,130     35,466   9.4 %
Income before income taxes 11,845 10,442 13.4 % 11,795 0.4 % 22,287 14,127 57.8 %
Taxable equivalent adjustment 90 97 7.2 % 229 60.7 % 187 466 59.9 %
Income tax expense   2,214     1,789   -23.8 %   3,377   34.4 %   4,003     3,934   -1.8 %
Net income $ 9,541   $ 8,556   11.5 % $ 8,189   16.5 % $ 18,097   $ 9,727   86.0 %
 
Earnings per common share:
Basic $ 0.191 $ 0.172 11.0 % $ 0.165 15.8 % $ 0.363 $ 0.198 83.3 %
Diluted 0.190 0.171 11.1 % 0.163 16.6 % 0.361 0.196 84.2 %
 
(1)  

Net interest income is also presented on a fully taxable equivalent (FTE) basis, the Company believes this non-GAAP measure is the preferred industry measurement for this item.

 

...
 
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED AVERAGE BALANCES
(Unaudited)
                 
 
For the three months ended
June 30, 2018 March 31, 2018 June 30, 2017
Average Interest Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate balance paid rate
(Dollars in thousands)
Interest earning assets:
Net loans (1) $ 2,075,307 $ 23,275 4.49 % $ 2,026,266 $ 22,760 4.49 % $ 1,863,525 $ 20,012 4.30 %
Loans held for sale   91,836   1,012 4.42 %   80,681   858 4.31 %   80,205   872 4.35 %
Total loans, net 2,167,143 24,287 4.48 % 2,106,947 23,618 4.49 % 1,943,730 20,884 4.30 %
Securities:
Available for sale-taxable 207,908 1,193 2.30 % 211,332 1,215 2.30 % 258,217 1,479 2.29 %
Available for sale-nontaxable (2) 50,710 429 3.38 % 54,737 472 3.45 % 59,209 619 4.18 %
Held to maturity-taxable 70,406 398 2.26 % 72,627 422 2.32 % 80,817 454 2.25 %
Held to maturity-nontaxable (2)   11,265   78 2.77 %   9,227   63 2.73 %   9,843   79 3.21 %
Total securities 340,289 2,098 2.47 % 347,923 2,172 2.50 % 408,086 2,631 2.58 %
Federal Home Loan Bank stock 19,324 274 5.67 % 19,324 280 5.80 % 19,324 227 4.70 %
Other interest earning assets   23,831   92 1.55 %   22,479   77 1.39 %   22,129   40 0.72 %
Total interest earning assets 2,550,587 26,751 4.20 % 2,496,673 26,147 4.19 % 2,393,269 23,782 3.97 %
Non-interest earning assets   174,270   176,785   180,524
Total assets $ 2,724,857 $ 2,673,458 $ 2,573,793
Interest bearing liabilities:
Deposits:
Checking accounts $ 638,910 948 0.60 % $ 593,499 687 0.47 % $ 633,276 480 0.30 %
Savings accounts 307,250 26 0.03 % 303,639 27 0.04 % 308,683 27 0.03 %
Certificates of deposit
Customer certificates of deposit 608,079 2,143 1.41 % 581,858 1,817 1.27 % 504,397 1,166 0.92 %
Brokered certificates of deposit   164,400   673 1.64 %   165,169   566 1.39 %   133,082   314 0.94 %
Total certificates of deposit   772,479   2,816 1.46 %   747,027   2,383 1.29 %   637,479   1,480 0.93 %
Total interest bearing deposits 1,718,639 3,790 0.88 % 1,644,165 3,097 0.76 % 1,579,438 1,987 0.50 %
Federal Home Loan Bank advances
Long-term advances 48,799 493 4.05 % 48,603 431 3.60 % 48,019 370 3.08 %
Short-term advances   236,747   1,083 1.83 %   265,322   989 1.51 %   286,604   694 0.97 %
Total Federal Home Loan Bank advances 285,546 1,576 2.21 % 313,925 1,420 1.83 % 334,623 1,064 1.27 %
Repurchase agreements and other   195   0.00 %   213   0.00 %   4,844   8 0.66 %
Total borrowed funds   285,741   1,576 2.21 %   314,138   1,420 1.83 %   339,467   1,072 1.26 %
Total interest bearing liabilities $ 2,004,380   5,366 1.07 % $ 1,958,303   4,517 0.94 % $ 1,918,905   3,059 0.64 %
Non-interest bearing liabilities
Total noninterest bearing deposits 376,905 375,142 333,784
Other noninterest bearing liabilities   39,839   40,729   38,771
Total noninterest bearing liabilities   416,744   415,871   372,555
Total liabilities $ 2,421,124 $ 2,374,174 $ 2,291,460
Shareholders’ equity   303,733   299,284   282,333
Total liabilities and equity $ 2,724,857 $ 2,673,458 $ 2,573,793
Net interest income and interest rate spread $ 21,385 3.13 % $ 21,630 3.25 % $ 20,723 3.33 %
Net interest margin 3.36 % 3.47 % 3.46 %
Average interest earning assets to average interest bearing liabilities 127.25 % 127.49 % 124.72 %
 
 
Interest bearing deposits
Checking accounts $ 638,910 $ 948 0.60